Resilience versus efficiency: the supply chain balancing act for challenging times

Pan­el
Car­oli­na Azar, senior direc­tor, Moody’s Ana­lyt­ics 
Mal­colm Har­ri­son, group chief exec­u­tive, Char­tered Insti­tute of Pro­cure­ment & Sup­ply
Ralph Kirk­wood, head of pro­cure­ment, FreeFlow Tech­nolo­gies
Josue Munoz, vice pres­i­dent e‑commerce glob­al sup­ply chain, Col­gate-Pal­mo­live
Chris­t­ian Tchoun­da, chief pro­cure­ment offi­cer, Oryx Ener­gies

Glob­al sup­ply chains were dis­rupt­ed when the Covid-19 pan­dem­ic forced gov­ern­ments to impose lock­downs. The dis­rup­tion, expe­ri­enced by most con­sumers as retail short­ages, exposed the fragili­ty of sup­ply chains, par­tic­u­lar­ly those that were heav­i­ly reliant on Chi­na or involved mul­ti­ple coun­tries and regions. 

Busi­ness­es were forced to adapt, find alter­na­tive sup­pli­ers, reduce reliance on coun­tries that intro­duced a zero-Covid strat­e­gy, and improve sup­ply chain resilience, while still offer­ing good val­ue. Then, just as economies were reopen­ing post-pan­dem­ic and sup­ply chain pres­sures eased, new shocks, such as the Rus­sia-Ukraine con­flict and ongo­ing US-Chi­na trade ten­sions, start­ed cre­at­ing dis­rup­tion.

Complex and continuous challenges  

Car­oli­na Azar, senior direc­tor at Moody’s Ana­lyt­ics, says that sup­ply chains are affect­ed by labour and raw mate­r­i­al short­ages; cyber­se­cu­ri­ty attacks that force busi­ness­es to switch from auto­mat­ed to man­u­al process­es; cli­mate and nat­ur­al dis­as­ter threats near ware­hous­es and facil­i­ties; addi­tion­al local and inter­na­tion­al reg­u­la­tions, espe­cial­ly in regard to envi­ron­men­tal and social gov­er­nance (ESG), and com­pa­nies strug­gling to stay in busi­ness or fil­ing for bank­rupt­cy.

“There have been two mas­sive sup­ply-side shocks – the pan­dem­ic and the war in Ukraine – and these two came togeth­er, we hard­ly recov­ered from one when along came the oth­er one,” says Mal­colm Har­ri­son, group chief exec­u­tive, Char­tered Insti­tute of Pro­cure­ment & Sup­ply. “But organ­i­sa­tions that work in con­sumer indus­tries have [also seen] demand-side changes.”

Har­ri­son explains that many of the same prod­ucts were still being con­sumed dur­ing Covid-19 lock­downs, but dif­fer­ences in con­sump­tion, such as new prod­uct pack­ag­ing for home deliv­ery, caused a lack of sup­ply in some areas and a sur­plus in oth­er areas. 

“All of this came on the back of prob­a­bly the last 20 to 25 years, when, glob­al­ly, we’ve had pret­ty benign, well-bal­anced sup­ply chains, and that’s dri­ven real effi­cien­cy – then sud­den­ly, we’ve had all these shocks around the same time and it has­n’t set­tled down yet,” Har­ri­son says.

The impact of volatility

Three diverse com­pa­nies were rep­re­sent­ed on the pan­el – Col­gate-Pal­mo­live is a multi­na­tion­al con­sumer prod­ucts com­pa­ny, Oryx Ener­gies pro­vides oil and gas prod­ucts and ser­vices for African mar­kets, and FreeFlow Tech­nolo­gies is a start-up that man­u­fac­tur­ers motors for e‑bikes. Their rep­re­sen­ta­tives shared com­mon and com­pa­ny-spe­cif­ic chal­lenges.

All three pan­el­lists cite volatil­i­ty as a sup­ply chain chal­lenge. For Col­gate-Pal­mo­live, Josue Munoz, vice pres­i­dent of e‑commerce glob­al sup­ply chain, says the pan­dem­ic has dri­ven volatil­i­ty which caused a glob­al lack of capac­i­ty around ports and labour, reduc­ing logis­tic net­work capac­i­ty, dri­ving unre­li­able sup­ply for raw and pack­ing mate­ri­als: “This has made it very dif­fi­cult in many cas­es to replen­ish our net­works… It has been going on now for two years.”

Chris­t­ian Tchoun­da, chief pro­cure­ment offi­cer, Oryx Ener­gies, says volatil­i­ty in demand, price and avail­abil­i­ty of goods affects sup­ply chains, adding that get­ting freight to Africa, espe­cial­ly from Asia, con­tin­ues to be dif­fi­cult: “We could see delays of one or two months to get deliv­er­ies from this region to Africa.”

Ralph Kirk­wood, head of pro­cure­ment, FreeFlow Tech­nolo­gies, explains volatil­i­ty from a start-up per­spec­tive: “Volatil­i­ty of com­mod­i­ty and com­po­nent pric­ing has had a real, hot impact [but] lock­downs right across the globe increased the timescale for the devel­op­ment phas­es [that rely on sup­pli­ers] as we’re try­ing to bring a prod­uct to mar­ket.”

Resilience versus efficiency: mitigating the risks

Har­ri­son says more com­pa­nies are focus­ing on build­ing sup­ply chains that focus pri­mar­i­ly on resilience rather than “exces­sive­ly on cost.”

“The most expen­sive thing you could ever buy is some­thing that doesn’t turn up –  if it doesn’t turn up, then you can’t sup­ply your cus­tomer and that’s a sale lost, poten­tial­ly for­ev­er,” Har­ri­son cau­tions. “We’re see­ing peo­ple focus­ing back on resilience – and resilience comes in dif­fer­ent forms, depend­ing on the sup­ply mar­ket that you’re oper­at­ing in.”

He says that steps busi­ness­es can take to weath­er sup­ply chain storms include “hav­ing mul­ti­ple sup­pli­ers, mak­ing sure the mul­ti­ple sup­pli­ers aren’t all in one sin­gle and dis­tant coun­try” and strik­ing a bal­ance between hav­ing more sup­pli­ers onshore and using sup­pli­ers from low-cost coun­tries.

Man­ag­ing inven­to­ry lev­els is anoth­er chal­lenge when seek­ing to improve resilience and mit­i­gate against sup­ply and demand volatil­i­ty. 

“If you’ve got very accu­rate fore­cast­ing and no volatil­i­ty, you don’t need a lot of stock [but] we’ve seen volatil­i­ty like we haven’t seen before [so] you’ll prob­a­bly not be able to man­age with­out a bit more stock in your sup­ply chains – and that’s what we’re hear­ing peo­ple are doing,” Har­ri­son says.

“A com­bi­na­tion of high qual­i­ty, time­ly third-par­ty data and sup­pli­ers’ data [can be trans­formed] into key met­rics and scores that can help assess the over­all risk,” says Azar. “Tra­di­tion­al­ly, we have all been focus­ing on finan­cial risk [but now] you need to think about finan­cial, rep­u­ta­tion­al, sus­tain­abil­i­ty and reg­u­la­to­ry risks alto­geth­er to get a com­pre­hen­sive risk pro­file. The more data you can get, the more met­rics you can cre­ate – then you can start to mea­sure trends and see if the risks are trend­ing down or up.”

The most expen­sive thing you could ever buy is some­thing that doesn’t turn up – if it doesn’t turn up, then you can’t sup­ply your cus­tomer and that’s a sale lost, poten­tial­ly for­ev­er

Kirk­wood says that as a start-up, FreeFlow Tech­nolo­gies does not have the resources to build up big inven­to­ries, so the com­pa­ny takes a more nim­ble approach: “Mak­ing sure all your sup­ply is not based in the one area is key, [hav­ing] mul­ti­ple sources of sup­ply close to cus­tomers.” He also adds: “There’s no sub­sti­tute in my view for being able to get boots on the ground to actu­al­ly get to see what your sup­pli­ers are about.”

Pro­cure­ment and sup­ply chain func­tions have been chal­lenged by longer lead times with Asian and Euro­pean sup­pli­ers, as well as find­ing alter­na­tive sup­pli­ers with­in Africa. Tchoun­da says the company’s strate­gies for mit­i­gat­ing this risk include invest­ing local­ly for raw mate­ri­als where pos­si­ble, and good rela­tion­ship man­age­ment with sup­pli­ers: “This needs to be done in advance, to make sure you are one of the pre­ferred cus­tomers of your sup­pli­er, that is the best way to get mate­r­i­al when a cri­sis is hap­pen­ing.”

Tchoun­da out­lined the impor­tance of sup­ply chain sta­bil­i­ty from the onboard­ing stage through to the deliv­ery of goods. He said the qual­i­fi­ca­tion process is impor­tant when start­ing work with a new sup­pli­er, includ­ing a thor­ough know-your-cus­tomer reg­is­tra­tion that allows Oryx Ener­gies to make an assess­ment of the com­pa­ny (finan­cial health and cor­po­rate gov­er­nance), its pro­duc­tion process, its sup­ply chain and ISO cer­ti­fi­ca­tion.

“The biggest risk is some­times on the sup­pli­er side and, par­tic­u­lar­ly in Africa by small and medi­um enter­pris­es (SMEs), the pro­cure­ment func­tion is not very devel­oped, so there is the need for the right skill set to make sure that the sup­ply chain is under con­trol,” Tchoun­da says. “We are devel­op­ing sup­pli­ers that are locat­ed in that region to improve and pro­vide more data to us.”

Munoz agreed that resilien­cy can be dri­ven by mov­ing pro­duc­tion clos­er to con­sump­tion loca­tions, along with hav­ing no sin­gle source sup­pli­er of mate­ri­als and agili­ty when adjust­ing inven­to­ry for sup­ply and demand volatil­i­ty: “Make sure you use data bet­ter, that your process­es become excep­tion-dri­ven – that is what you have to do to make sure you pre­pare your­self for a world that I think is going to con­tin­ue to be volatile and real­ly sur­pris­ing for the next few years.” He adds that Col­gate-Pal­mo­live dif­fer­en­ti­ates real time sup­ply chains and “right time” sup­ply chains. 

“Every­body thinks [‘real time’ means updat­ing sup­ply chains] by the sec­ond, by the minute … but that can be very cost­ly,” Munoz explains. “The term we use is ‘right time’ – what is the right time and fre­quen­cy so the response of the process [enables you] to pro­vide excel­lent ser­vice to all your cus­tomers?”

Future-proofed, sustainable supply chains

Trans­par­ent, sus­tain­able sup­ply chains that ful­fil reg­u­la­to­ry, share­hold­er and con­sumer demands for ESG excel­lence have become increas­ing­ly impor­tant, although obtain­ing infor­ma­tion about sub­jects such as work­ers’ rights and envi­ron­men­tal stew­ard­ship along sup­ply chains can be dif­fi­cult. 

Har­ri­son says that trans­paren­cy for sus­tain­abil­i­ty is “an added lay­er of com­plex­i­ty”, par­tic­u­lar­ly when 90% of Scope 3 car­bon emis­sions are in sup­ply chains. He reports that this process will “evolve sig­nif­i­cant­ly over the years to come” as busi­ness­es mea­sure mul­ti­ple aspects of ESG.

A com­bi­na­tion of high qual­i­ty, time­ly third-par­ty data and sup­pli­ers’ data [can be trans­formed] into key met­rics and scores that can help assess the over­all risk

For FreeFlow Tech­nolo­gies, a com­pa­ny that pro­motes green mobil­i­ty, Kirk­wood says entire organ­i­sa­tions need to con­sid­er sus­tain­abil­i­ty: “Instead of just look­ing at ESG risks from a com­pa­ny per­spec­tive, you need to start think­ing right along the sup­ply chain, so those in sup­ply chain and pro­cure­ment need to lead the con­ver­sa­tion and edu­cate the organ­i­sa­tion in that kind of think­ing.” 

The role of peo­ple in sup­ply chains is anoth­er impor­tant aspect of future-proof­ing sup­ply chains. Tchoun­da cites “tal­ent man­age­ment” as the biggest pri­or­i­ty for Oryx Ener­gies.

“We clear­ly need to have the right set of skills in the organ­i­sa­tion to make sure we are aligned and able to deliv­er our com­mit­ments,” Tchoun­da says. “It includes dif­fer­ent ele­ments – ESG, resilience, trans­port and logis­tics, raw mate­r­i­al short­ages – we need dif­fer­ent types of knowl­edge to deliv­er our objec­tives.”

Kirk­wood agrees that hav­ing the right skills are cru­cial to build­ing resilience: “There’s a lot we can learn in terms of risk man­age­ment about how to adapt from the invest­ment world – I think they do it pret­ty well and that’s the type of skill set we need to devel­op over the next few years.”

“You have to adjust your process­es to make sure they are respon­sive to changes in the envi­ron­ment and you have to have the right sys­tems to pro­vide you with the vis­i­bil­i­ty and the ana­lyt­ics to enable you to react to the vari­abil­i­ty that you are see­ing in our envi­ron­ment,” says Munoz.

“Resilience is being able to adapt to any­thing that is thrown at you – hav­ing a clear vision around sus­tain­abil­i­ty and a frame­work that dri­ves every­thing you do in your organ­i­sa­tion is your first step,” Munoz added. “Once you have that, [you can] define any action you take [or] any deci­sion that you make, which gets the organ­i­sa­tion clos­er to the vision around being more sus­tain­able and mak­ing the world a bet­ter place to live.”

Azar brings the con­ver­sa­tion back to the core val­ues that will help busi­ness­es pre­pare for sup­ply chain risks with­out neglect­ing sus­tain­abil­i­ty goals.

“Aware­ness, aware­ness, aware­ness,” is how she sums up what com­pa­nies need to do to ensure they are work­ing with resilient com­pa­nies along sup­ply chains. “What are their sus­tain­abil­i­ty frame­works, busi­ness goals, finan­cial sol­ven­cy plans, eth­i­cal and rep­u­ta­tion­al behav­iours, labour prac­tices, cor­po­rate gov­er­nance and social respon­si­bil­i­ty, and prac­tices to pro­tect the envi­ron­ment and soci­ety?  If you can under­stand more than just the finan­cials, and can real­ly under­stand how sup­pli­ers are plan­ning to sup­port their mis­sion and vision, meet their tar­gets and deal with uncer­tain­ty and vul­ner­a­bil­i­ties, then you will under­stand who you are doing busi­ness with.”   

For a 360° view of your sup­pli­ers across finan­cial, sus­tain­abil­i­ty, rep­u­ta­tion­al and oper­a­tional risk fac­tors, to help you ana­lyze vul­ner­a­bil­i­ties and antic­i­pate poten­tial dis­rup­tions across the sup­ply chain, vis­it moodysanalytics.com/supply-chain

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